Skip to main content

Derogations of an EU Regulation

Emissions Trading Scheme, Kyoto, cap and trade, Climate Exchange, law of demand- all have been mentioned under the hot topic of CO2 emissions and climate change policies. With all of the concern of global warming- it’s no surprise that countries are trying to ´go green´ now too.

In recent news, French EU Presidency has proposed a compromise designed to overcome opposition to EU climate plans from some of the heavy industries and newer member states. The French EU Presidency is asking for early identification of industries exposed to foreign competition and temporary exemptions from full CO2 permit auctioning for coal-dependent economies.

Some member states disagreed with the proposal. Poland’s secretary of state for European affairs, Mikolaj Dowgielewicz states, “The proposed measures open the door to the phenomenon of windfall profits for power companies. Our objective is not to create more profits for energy companies. Our objective is to protect consumers.”

CO2 emissions have long been a concern for production companies. At higher CO2-prices, companies are tempted to pass the costs down to the final consumer. However, when faced with a price increase, the consumer will demand less and substitute more. Production from the company will decrease, and imports of substitutes into the country will increase. This leads to a carbon emissions leak- another outcome that countries are trying to avoid.  However, in some industries such as the paper industry, this practice has already been banned. Emissions Trading Scheme costs cannot be passed down to the final consumer because of the heavy international competition.

Opinions concerning the trade of carbon emission permits have been wide-range. Some believe it’s an expensive bureaucratic solution to fix a problem that may not even exist, and others believe it’s a great policy to try to save the world from the global warming time bomb.

In either case many economists agree that a policy regulating carbon emissions, no matter how unorganized or unfair, is better than no-policy at all. Many countries have adapted their own plan under the international KYOTO plan, including the European Union’s Emissions Trading Scheme. The United States has yet to confirm to the KYOTO plan, but future president Obama has stated that some kind of environmental policy is in plan for the future.

The proposal calls for the European Commission to ‘rapidly’ produce figures that set a threshold to quantify the risk of certain industries becoming exposed to competition by third countries with less stringent CO2 reduction regimes. However, with the upcoming International negotiations towards the KYOTO Protocol to be finalised in Dec. 2009, the request may be viewed as a wrong signal.

Many countries rely on certain resources for over half of their power generation portfolio. For example, Poland relies on coal for 60% of their portfolio.

The economic and environmental plan of emissions trading is proving to be more complex than ever. It’s hard to bring the world, or even just a group of countries together to bring about a significant change. The complex system of CO2 trading and it’s effects on the economy is certainly one to pay attention to.

The Council, Commission and Parliament are due to continue this trialogue next Tuesday (25 November) to reach a deal to be agreed at the European Council on 17 December.

Complexity Science, Environment